Buying Your Next Home? We Can Help.
As a homeowner, you’ve built up significant wealth in your property. Now, whether you’re looking to sell and buy something new or hold on to your existing property as an investment, we can help you navigate the next steps.
What is a bridging loan?
A bridging loan is a short-term solution that “bridges the gap” between the sale of your current home and the purchase of your new one. This type of loan can make the transition smoother, giving you the flexibility to buy your dream home before your existing property has sold.
Bridging loans can be a great option if you’ve found the perfect new home and need to move quickly, but it’s important to understand the details and potential risks. Your Loan Market adviser will walk you through everything, helping you decide if a bridging loan is right for you.
How It Works?
When you get a bridging loan, the lender temporarily uses both properties as security. During this period, you pay your current mortgage and typically an interest-only payment on the new loan. Once your first home sells, the proceeds are used to pay down the bridging loan, and the remaining balance becomes your new home loan.
Understanding the Different Types
There are two main types of bridging loans:
- Closed Bridging Finance: This is used when the sale dates for both your new and old homes are confirmed. This type of loan bridges the short period between the two settlement dates, and lenders are typically more comfortable with this arrangement.
- Open Bridging Finance: If you want to buy your new home before you’ve sold your current one, you’ll need an open-ended bridging loan. This is considered a higher risk for lenders because the sale date is uncertain. To qualify, you’ll typically need more equity in your current property.
What Are the Costs and Risks?
Bridging loans add a temporary cost on top of your existing mortgage. You will generally be charged an interest-only rate during the bridging period, and lenders will closely assess your ability to manage payments on both loans.
It’s important to be aware of the risks, especially with an open bridging loan. Your home might take longer than expected to sell, leaving you to cover two full mortgage payments. If your home sells for less than you hoped, you might need to apply for an additional loan to cover the shortfall.